Changing the Billable Hour Paradigm

If you do a bit of research, you’ll find one of the most common complaints against lawyers is that they are expensive. This issue is followed closely by the gripe that they are inefficient. It’s probably not a coincidence that these two are at the top of the list given how closely they are related.

Most law and professional service firms bill clients by the hour at a contractually negotiated rate. Legal representation is often charged in tenths of an hour, earning lawyers their notorious distinction of charging for everything. Most attorneys have had that experience of talking to a friend or family member on the phone only to be poked with questions like ‘how much will this cost me?’ or ‘is the metre running?’

A Canadian appeals court judge recently commented on the billable hour model in refusing to approve a court-appointed receiver’s fees. Here was his take:

There is something inherently troubling about a billing system that pits a lawyer’s financial interest against that of its client, and that has built-in incentives for inefficiency. The billable hour model has both of these undesirable features.

A recent guest on the Beyond Billables Show, Demetrio Zema, had these experiences and echoed precisely the same sentiments. This, among other things, led him to start his own firm, Law Squared. In doing so, he’s tackling an outdated model that has flaws obvious to just about everyone.

Attorneys who work for Law Squared charge clients flat rates or on a term-membership basis. This cuts out the pressure tied up in billable hours and dramatically changes the lawyer-client relationship. This creates an environment where both parties are clear on the price involved and can then turn their attention more fully to the most important thing, the outcome. In Demetrio’s case, this flexibility and altogether different environment helped him retain his love of the law and his desire to continue practising.

But the reasons we need to rethink the billable hour model don’t begin or end with Law Squared. There are quite a few other considerations.

Here are some of the primary ones:

Flat fees incentivise efficient work

Everyone’s probably heard it before, but it bears repeating. It may not even be conscious, but working under a billable hour model can encourage inefficient practices. Working on a fixed rate does the opposite, giving people a reason to streamline operations, find creative solutions, plan more effectively and ultimately deliver more value. It’s a great impetus to take a critical look at your system and see where things can be done better. If done right, this can be a win for the lawyer, the client and paralegal/support staff too.

Flat fees save solicitors work

Accurately tracking and billing incremental tasks and hours for a wide range of clients on a monthly basis is no small administrative undertaking. One of the most common complaints we hear from lawyers is that on top of a taxing, stressful job they must also carefully track all their time or hit some quota determined by the firm. A flat rate liberates the attorney from this grunt work and drastically reduces that amount of time they spend on billing details.

Flat fees can save client money

This might not immediately seem like a boon for attorneys, but it also likely means happier clients, which can equate to more business and/or referrals. For instance, some commonly drafted documents used in litigation, portions of discovery requests and responses, motions, and other briefs can be saved as ‘templates’, re-purposed or produced using technological tools. The economics force efficiency, thus saving clients money - and contributing to the cycle explained above.

A fixed rate turns the focus from time to quality

Time is not the best metric when it comes to figuring out the quality of services rendered. Moving away from hourly billing takes the focus off how many minutes or hours go into something and puts it firmly onto results. There are more than a few cases where clients try to take shortcuts to reduce an attorney's time spent working to save money only to have their outcome compromised. A flat rate turns things into a partnership where both parties are focused on one objective.

Flat fees can reduce conflict with clients

Many disputes or general strife that come up in the course of an attorney-client relationship have to do with billing. Some clients will go through an itemised invoice and (particularly if the relationship is not going well) get contentious about certain items. Others are not properly informed and get hit with a bill that far exceeds what they expected. Generally speaking, a flat rate allows for negotiation but sets clear parameters for the monetary dynamics in play. It also has a far higher chance of leaving both parties satisfied.

Shifting away from the tried and trusted billable hour paradigm can also provide a much-needed differentiator for law firms.

The legal marketplace is crowded and often there is not much difference between options (from an outsider or consumer’s opinion). Reused marketing slogans on law firm websites do little to create the desired effect.

On the other hand, shifting the entire basis by which your practice or firm runs shows a progressive mindset, it sets you apart from the competition. The policy level, such as billing decisions, is another way legal practice can be approached differently.

On top of that, it allows for breathing room in the sometimes stiflingly traditional industry. It allows people like Demetrio to build his own formula and create an environment where he’s happy, and he and his employees can thrive. The point here is not to make a diatribe against billable hours (the New York Times has already done this) - the point is to create a dialogue around alternatives and drive home a bigger philosophical message.

That message is this: The law needs to be more forward-thinking and have more flexibility, and it needs to become more human-friendly.